Posted on 10/03/2016 4:08:17 PM PDT by TigerClaws
On October 3, Garden Fresh Restaurant Corp., which owns Souplantation and Sweet Tomatoes, filed for bankruptcy. The company, owned by private-equity firm Sun Capital Partners, said it will close 20 to 30 of its 124 locations and put itself up for sale.
On September 30, Restaurants Acquisitions, the operator of Black-eyed Pea and Dixie House restaurant chains, converted its Chapter 11 filing to Chapter 7 liquidation. The bankruptcy court order noted the company had shuttered its restaurants and management had resigned.
On September 29, Cosi Inc., a fast-casual chain with 1,100 employees filed for bankruptcy. It closed 29 of its 74 company-owned restaurants and laid off 450 people. The 31 independently owned franchise operations continue operating.
Also last week, Logan’s Roadhouse, a casual steakhouse with over 200 locations, closed more than 10 restaurants, on top of the locations it had already closed in August when it filed for Chapter 11 bankruptcy.
Nine restaurant companies representing 14 chains have filed for bankruptcy since December: Garden Fresh Restaurant, Restaurants Acquisitions, Cosi, Logan’s Roadhouse, Fox & Hound, Champps, Bailey’s, Old Country Buffet, HomeTown Buffet, Ryan’s, Johnny Carino’s, Quaker Steak & Lube, and Zio’s Italian Kitchen.
Restaurants are precarious creatures. They lease costly space and have to invest in equipment and furnishings. It’s a competitive environment, with high expenses and little pricing power. To expand, they load up on debts. Some, like Cosi, always lose money. Customers are finicky and fickle. When new competitors come along, or when the economy tightens, customers thin out and creditors begin to fret and turn off the money spigot.
Some of that is normal. The restaurants come along, and old ones die.
“But the current wave of bankruptcies is definitely unusual, and rivals the chain bankruptcy wave of 2009 and 2010, when several chains filed for debt protection after sales fell,” writes Jonathan Maze at Nation’s Restaurant News, adding:
In this case, the wave of bankruptcies is largely due to a decline in sales at restaurant chains that is particularly harmful to companies that are already walking a balance-sheet tightrope. The companies that filed for bankruptcy recently were already weak.
Some are repeat offenders, including Buffets LLC (Old Country Buffet, HomeTown Buffet, and Ryan’s) which is now mired in its third bankruptcy. Many of them, battered by declining sales and rising expenses, have been losing money for a long time. But now things are coming to a head.
Restaurant bonds moved into fourth place early this year in Standard & Poor’s Distress Ratio, behind brick-and-mortar retailers and the doom-and-gloom categories of “Energy” and “Metals, Mining, and Steel.”
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Other restaurants are trying to hang on by cutting costs and shrinking their footprint, which entails more sales declines, and thus continues the downward spiral.
In August, casual-dining operator Ruby Tuesday announced that – after “a rigorous unit-level analysis of sales, cash flows, and other key performance metrics, as well as site location, market positioning and lease status” – it would sell its headquarters and close 15% of its 624 or so company-owned restaurants by September.
Clinton Coleman, interim CEO of Rave Restaurant Group, which operates Pie Five Pizza Co. and the Pizza Inn buffet brand, put it this way on September 23, after reporting that same-store sales had tumbled in Q4 and that losses had ballooned: “Sales trends in the fourth quarter were very challenging for the Pie Five system, as was the case in much of the fast-casual segment.”
The restaurant industry is not a sideshow. About 14 million people work in it, according to the National Restaurant Association. With $710 billion in annual sales, it’s an important part of consumer spending and accounts for about 4% of GDP. If the industry is having problems, it’s a red flag for the overall economy.
Its difficulties are not limited to just a few beat-up restaurant chains. The National Restaurant Association reported on Friday that its Restaurant Performance Index (RPI) for August fell 1% to 99.6 and is now in contraction mode (below 100 = contraction). It was the worst reading since February 2013.
The RPI’s post-Financial Crisis peak was in the spring and summer 2015, when it dabbled with 103. Its all-time peak, going back to its inception in 2003, was 103.4 in 2004. Its all-time low of 96.5 occurred during the depth of the Financial Crisis.
The index consists of two components:
The Current Situation Index, which tracks restaurant operators’ reports on same-store sales, customer traffic, hiring, and capital expenditures And the Expectations Index which tracks restaurant operators’ six-month outlook, including on the overall economy – more on that in a moment.
The Current Situation Index fell 1.9% in August to 98.6, the lowest since February 2013. Three of its four indicators declined: same-store sales, customer traffic, and labor.
Only 30% of the restaurant operators reported a year-over-year increase in same-store sales. That’s down from 71% in February.
But 53% reported a year-over-year decline in same-store sales. This metric has been deteriorating for months. In February, March, and April, between 19% and 38% of the operators had reported lower same-store sales. Then it ticked up: 42% in May, 43% in June, 45% in July, then jumping to 53% in August.
Operators also reported a net decline in customer traffic: while 21% reported a year-over-year increase, 59% reported a year-over-year decline. August was the fourth months in a row of year-over-year net declines in customer traffic.
And optimism is beginning to wane. The Expectation Index edged down to 100.6: “While the Expectations component of the index remains in expansion territory, it too has trended downward in the past several months.”
And operators are turning gloomy about the overall economy: only 17% expect the economy to improve over the next six months, but 29% expect conditions to worsen:
This represented the 10th consecutive month in which restaurant operators had a net negative outlook for the economy.
Restaurant operators as a group are an optimistic bunch – they have to be, or else they wouldn’t do it. But they also have daily intense contacts with consumers and are thus a leading indicator of the consumer-based economy.
In the beaten-up brick-and-mortar end of the retail industry, the meme has been that Millennials aren’t buying enough goods but like spending money on “experiences” – such as eating out. If that’s true, and not just an excuse by faltering retailers, it appears Millennials are not doing enough of that either anymore. Either way, the restaurant industry has been giving off increasingly loud warning signs about the overall economy, and the state of the consumer.
If I take the fam out, it’s $100 even for a simple deli dinner. I can make a gourmet dinner at home for half that.
I actually feel safer about our power plants after reading your post. You’re smart.
Sounds so yummy.
I just made homemade bbq beef ribs for the Jewish New Year, still enjoying the leftovers. The whole huge pile of ribs - grass fed mind you - cost $40 but that is what ONE serving would cost at a restaurant.
There is no time of day or night that there is not a line of cars stretching into the street at our local in n out. Business is not hurting.
Glad you were able to get some. Yes, it’s a very good product.
I like What-a-Burger. There’s none near me unfortunately. Though I couldn’t go a lot, I’m going to Five Guys less and less these days. The quality of the meat seems to be going down. Seems like they substituted something far less quality in terms of burger. Shame, too. I started enjoying it (on rare occasion) about 5 or 6 years ago.
In and Out
My boys insist on daily stops when we’re traveling the NorCal
They have a couple between Dallas and Austin now but it’s like you said
Lines all the time
We have a new chain in the mid south and Caroline’s called Cook Out
Same sort of deal
Great shakes and made to order burgers
I know the dad of the founder
Flea Market folks in Huntsville AL
My free safety 13 year old makes me drive the 25 miles one night a week to Vandy area to get some
It’s like an outing
I think Nashville of any town east of Big Muddy deserves an In and Out
They are all company owned
Man I’d love a franchise
Things are not good, even in the Bay Air-head area. Within the past week, two moderate-priced, family-friendly restaurants within a mile of each other closed abruptly near me. Both were outlets of small restaurant chains, which make it doubly bad.
Great economy? Low unemployment?? Maybe in the Beltway, where Obama-lama-ding-dong and his cronies ON BOTH SIDES OF THE AISLE just keep adding more and more bureaucracy to keep us minions out in the rest of the country in line.
Pray for a Trump triumph next month.
A good Cook Out burger is the equal of Five Guys and far less expensive, but they do have issues with spotty management from one location to the next. Their headquarters are somewhat local to me here in NC. They’re not new, they’ve been around since the 80’s at least. You knew Junior Samples?
Yeah, that is money making. But they don’t franchise. I love watching them from the car make the fries: peel a potato. Slice it with a fry slicer. Dip em in the oil. Salt. Done.
Like you, we had an acquaintance who owned a few Mickey D’s (his were in South Central). He was a black gentleman, conservative, raising twin boys in a lovely house in a good neighborhood. I still wouldn’t eat that crap but it served that family just fine.
Yes. No doubt that the price was high.
I knew a fellow back in the eighties who had a bright idea about how to get a bunch of free money. He did a slip&fall at a cheap motel then found a cheap lawyer. He won $30k. For that he spent 3 years until the settlement not working and hobbling around with a neck brace and a leg brace and had to refrain from working lest a judge not believe his case to be valid. After he got his settlement he had to spend another year as an invalid in fear of shadowy insurance agents with cameras. So. He made 30k for four years’ actually difficult and uncomfortable work and somehow thought himself a winner, cleverly living off of someone else’s money.
True, but what if you can’t afford to buy a house? What if you can’t get approved for a mortgage? What if there’s more houses on the market than people to buy?
Can’t afford to buy? Well, owning a home is an entitlement. Generations of Americans worked to earn the money for a down payment on a mortgage. People get turned down for loans for various reasons. Some are able to work with banks and loan companies to qualify.
The really good Chinese place in my neighborhood I think is run by a Laotian lady.
She is very nice and knows if nothing else I will go for Crab Rangoon and orange sauce. Whenever I order from there I ask her not to change anything. It’s great as it is.
It’s a small but very well kept up place.
In and Out only builds a new restaurant if it’s within an easy drive from one of their depot/warehouses. That’s how they assure that their food is always fresh. Nashville would have to have enough In and Outs to justify a warehouse. And they don’t franchise.
They plan to build I think a dozen in Texas....two up already
But that is more than 300 miles away
Cookout is the Reaves family
I think the son is the one running the big territory expansion these past 10-15 years
Never knew Junior
Wish I’d known some of the HeeHaw wimmin
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